The $13 billion dollar child care gap

February 23, 2017

Families with pre-school aged children who want to work rely on child care. Compared to its peers, Ontario has among the highest child care costs. For the region to remain competitive, Ontario needs an affordable child care policy that allows women and parents to increase their participation in the labour market. Raising the level of female participation in Canada's labour market to match that of Québec could add $13 billion to the national GDP.

The most commonly used form of child care in Ontario are daycare centres.[1] In 2014 (latest data available), Windsor had the lowest licensed daycare fees of any major city in Ontario at an average of $864 per month for infant, toddler, and preschool fees. Toronto had the most expensive with an average of $1,333 per month. For families living in cities within Ontario, these high fees are compounded by long waiting lists for subsidies and daycare spaces[2] , as well as potential cuts to daycare centres.

However, comparisons of gross child care fees alone are not very useful, as actual child care costs can be substantially lower when cash benefits, rebates, tax concessions, and other relevant benefits are included. Yet, even when such in-kind benefits are accounted for, child care costs for parents in Ontario remain high; despite spending over $11 billion on the early childhood sector each year, government child care assistance in Canada and Ontario lags the majority of other advanced economies. In order to reduce costs for parents, it is important that the province develops an affordable and effective child care strategy, which includes increasing the supply of child care spaces.

According to the OECD, families in Ontario with two working parents and young children spend 22.2 percent of their family net income per month on full-time child care. This is high in comparison to Ontario’s international peers and the OECD average.

Single parent families face particular challenges when trying to access child care. Because of this, child care benefits and rebates are particularly focussed toward such families, and as a result, single parents in most OECD regions have the lowest child care costs as a percentage of net income. However, in Ontario, the out-of-pocket costs are still high and targeted benefits are lacking.

Single parents earning 67 percent of the average wage ($31,676 CAD) would need to spend 32.3 percent of their net income per month for the same access to formal child care. Relative to our international peers and the OECD average, single parents in Ontario face extremely high costs for child care. Although Ontario does not have the highest gross child care fees, the lack of government spending in this area compared to other OECD regions and the province’s peers, contribute to the region having high net costs.

What does this mean for labour market participation?

Women’s labour market participation tends to be closely related to the availability and affordability of child care. Research from the Canadian Centre for Policy Alternatives suggests that when child care is readily available and affordable, women’s labour force participation and birth rates often increase.

According to the Advisory Council on Economic Growth, women in Canada (outside of Québec) aged 25 to 54, who have children under the age of 16, have a considerably lower workforce participation rate, at 85 percent compared to 93 percent in Québec - where child care costs are capped at $174 per month.

There is a lot of untapped economic potential in the province. The presence of affordable and available child care stimulates economic growth by increasing employment and thereby increasing spending and tax revenues. Raising the national level of female labour force participation to match that of Québec could add $13 billion to national GDP, or 0.7 percent to Canada’s GDP per capita. Further, research from British Columbia suggests that the implementation of a $10-a-day child care plan is projected to increase employment and BC’s provincial GDP by almost 2.0 percent, and generate sufficient overall government sector revenues to pay for the implementation and operation of the program.

To help close Ontario’s prosperity gap, increasing labour market participation in the province is essential. To capitalize on its strong working age population, Ontario can increase the utilization of this productive segment of the population by giving more labour market access to parents. Ontario’s Long-Term Report on the Economy acknowledges that access to affordable, quality child care is key to supporting workers’ ability to fully participate in employment.

In the most recent Speech from the Throne, the Ontario government pledged to create 100,000 new child care spaces, with 3,400 new child care spaces in schools said to be created this year. However, this investment will fail to close the prosperity gap or increase labour market participation rates unless there is further action taken to lower the costs for each child care space. A province-wide strategy is needed.

Looking ahead to the 2017 Ontario Budget, perhaps affordable child care will be a key investment on the agenda. Unless they can rely on informal care arrangements, families in Ontario require access to affordable formal child care to be able to participate in the labour market and help make the region more competitive.